Swing Trading vs Day Trading

Swing Trading vs Day Trading

People ask me all the time, “Should I day trade or should I swing trade? Which is more profitable?” And that’s what we’re going to talk about right now, swing trading vs day trading.

Swing Trading vs Day Trading: Which one is better?

Swing trading vs day trading, which one is
better? Well, let’s define it first.

When you are swing trading, and it doesn’t
matter what instrument whether you’re swing trading stocks, or options or
Forex. When you are swing trading you’re holding your position for a few days.

For me personally, I like to hold a
position between 5 to 20 days.

When you’re day trading you’re opening and
closing a trade within 1 day. For me personally, when I’m day trading I’m
usually in a position between 5 and 20 minutes.

So swing trading 5 to 20 days, day trading
5 to 20 minutes.

What are the main differences?

So what are the main differences and what
are the pros and cons?

Let’s talk about the first factor, time

When day trading you need to sit in front
of the computer.

When I day trade, I sit in front of the
computer for 1 hour. And here’s one important thing if you want to succeed with
day trading, two conditions have to be met.

You need to be ready and the markets need
to be ready. What do I mean by this?

Well some people say, “I’m working
throughout the day so I’m busy, but I can day trade at night,” and so they
ask, “What is the best market to day trade from 8 to 9 pm?”

Probably none because the markets are not
moving during the time. Based on my experience, markets move in the open and in
the close.

So this means between 9 and 10 Eastern
Time, which is shortly before the open and shortly after the open, or then from
3 to 4 o’clock which would be right into the close.

This is where for some people it might not
be possible to do day trading.

On the other hand, when swing trading you
can do it any time, especially when the markets are closed. All you need is 15
minutes per day.

How I like to trade

I like to look at charts at night when the
markets are closed to make my swing trading decisions for the next day.

By the way, if you’re interested in how
exactly I’m doing it I’ve set up a website for you it’s called www.mytradingroutine.com

If you go there you’ll see exactly how I
find the best stocks, when I enter these stocks, where do I place my stop loss
and when do I take profits and this is for stocks and options.

So, the first criteria, time. If you do
have time throughout the day, day trading might be for you. If you do not have
time throughout the day swing trading might be better for you.

Let’s talk about the second factor, profit

After all, I said we want to talk about
what is more profitable, swing trading or day trading?

Here’s a rule of thumb: The smaller the
timeframe, the smaller your stop loss.

Let me give you an example so that you know
exactly what I’m talking about.

Let’s say you’re trading a stock and the stock
moves $2 per day. When you’re swing trading you need to place a stop loss of at
least $2, otherwise you might get stopped out throughout the day while the
stock is moving.

And when swing trading you want to be in a
position between 5 and 20 days so you need to give the trade a little bit more
room. So therefore, you need a stop loss of at least $2.

When day trading you can use a much smaller
stop loss. I personally like to use a stop loss that’s 10% of the average daily
range, the ADR.

So in this example, if a stock moves $2 per
day you can choose a stop loss of only 20 cents. So the stop loss is much, much
smaller.

Therefore, even though most people thing
that day trading is riskier it is actually less riskier because you risk less. The
disadvantage is a smaller stop loss means that you have a smaller profit
target.

The golden rule

The golden rule for me is that for every
dollar that you raise you try to make $2. So in our example when swing trading
and you’re risking $2 you’re trying to make $4.

On the other hand, when day trading and you
only risk 20 cents you’re trying to make 40 cents. So, what would you rather
make $4 or 40 cents?

Now here’s the important thing, when day
trading of course you have more trading opportunities.

So when you’re swing trading you might have
one opportunity per day. When day trading you might have 4, 5, maybe 10
opportunities per day. So even though you make smaller profits, you make more
of these smaller profits.

Here’s what I personally do

I personally swing trade stocks and
options, and I day trade futures for leverage. Especially with futures you have
enormous leverage.

For example, in crude oil you have the
leverage of one to one thousand.

What does this mean?

It means that if crude oil moves $1 and
you’re trading one contract of crude oil futures, you’re making or losing
$1,000.

Recap

Think about it this way

Swing trading is like driving a car at
regular speed. Day trading is driving a car on the german autobahn with 160
miles an hour.

So when swing trading you can take your
time to analyze the market.

When day trading you have to be absolutely
focused and this is why I only trade for one hour a day, because after one hour
I lose focus and when it comes to day trading this can be dangerous.

Which one is better? Day trading or swing trading?

Well it depends on your situation. If you
do have time throughout the day to watch the markets and you know what you are
doing day trading can be very profitable.

If you are new to trading I recommend that
you start with swing trading and then after a while at day trading to the
makes.

So now you know the difference between day
trading and swing trading and what’s best for you.

I hope that you found this helpful. If you
did, please leave a comment and let me know which you prefer, day trading or
swing trading?

If you’re currently trading, what do you do and why? Why do you swing trade or why do your day trade? Or why you trade with one or with the other?

Trading Futures, options on futures and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. The lower the day trade margin, the higher the leverage and riskier the trade. Leverage can work for you as well as against you; it magnifies gains as well as losses. Past performance is not necessarily indicative of future results.